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2001 BW 50

SPRING 2002

STREET WISE

Gilead: Fighting AIDS and Winning on the Street
Analysts expect big things from its new drug Viread, and that could boost what's already a pricey stock


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In the war against HIV and AIDS, the challenge of viral mutation is an increasing concern of doctors. HIV's ability to mix up its DNA is allowing it to become increasingly resistant to the drug "cocktails" that have thus far proved so beneficial. As a result, patients who thought they had beaten the disease after spending years on a regimen of several drugs are suddenly finding themselves becoming terribly sick.

Thus, the race to develop AIDS medications that attack the viral proteins in novel ways is again big business. Gilead Sciences (GILD ) in Foster City, Calif., is the victor so far this year in the fight against the disease and its ability to become resistant to drugs that once seemed to work. Gilead, which has developed antivirals for a host of diseases from the flu to hepatitis, introduced Viread in November. It has had unexpectedly brisk sales -- $13.2 million in its first two months on the market -- suggesting that it's already on its way to becoming an important weapon in the battle against a clever and deadly virus.

Gilead, this year's No. 1 performer in the Standard & Poor's Mid-Cap 400 index, is riding high on Viread's strength. If its sales continue to climb, analysts expect the company to earn its first annual profit in 2002. Wall Street is pushing its sales forecasts for the drug as high as $175 million this year, and $600 million in four years -- further bolstering Gilead's value in investors' eyes. Over the last year, the stock has climbed to $36 a share, from $15.

POTENTIAL BLOCKBUSTER.  So, Gilead is no longer a bargain. With a price-to-earnings ratio of 145, investors have already begun to bet heavily on the stock. By contrast, bellwether biotech company Amgen has a p-e of 58, and fast-growing Idec Pharmaceuticals has a multiple of 117.

One factor could justify Gilead's current priciness, however: Pent-up demand for new AIDS medications means Viread could potentially be a blockbuster -- a drug that exceeds $1 billion in annual sales, as some analysts are estimating. "Based on Viread's success, we think the company can post a small profit [$4.5 million, or 2 cents a share] for 2002," says Prudential Securities' John Sonnier, who rates the stock a buy. "The initial prescription data point to a lot of upside potential for the drug." He projects 2003 net income of $116 million for Gilead, with Viread sales reaching $300 million.

Viread isn't Gilead's only potential big hitter. The company also is developing a new antiviral for hepatitis B, which could be available as early as next year -- thus tackling a market that's sorely underserved. Hepatitis B, a liver disease transmitted through blood and sexual contact, isn't as fatal as AIDS, but it has often-devastating consequences.

"IMPORTANT ADDITION."  Hepatitis B is about 100 times easier to contract than HIV, and while not everyone who is exposed to it gets sick, doctors say they don't have an effective long-term antiviral treatment for those who do. "It's an often silent and asymptomatic disease. There is a large population of undiagnosed people in the U.S. alone, and the need for the drug is substantial," says John Martin, president and CEO of Gilead.

In the near term, though, Viread is the catalyst behind Gilead's growth. "There's no question that Viread is an important addition to the [world's drug] arsenal," says Dr. Kenneth Unger, who treats AIDS patients in New York. "In patients where the current best therapy is no longer working, this could be a nice option."

Analyst Tom Dietz of Pacific Growth Equities says he has done surveys of doctors and HIV-positive patients that indicate the undesirable side effects -- including pain and weight loss -- associated with some other popular AIDS drugs such as d4T may make Viread an important option. The pill is taken once a day, which also makes it a likely prescription for patients who have a hard time sticking to a drug regimen. "Right out of the box, we're seeing Viread take sales away from d4T," Dietz says.

In short, with roughly 50,000 U.S. patients starting on AIDS cocktails for the first time this year -- and 200,000 to 300,000 more finding that their virus has grown resistant to therapy -- Viread could be a popular option in the nonstop fight against HIV and AIDS. And although Gilead's stock is already a high-flier, this biotech fledgling may still what it takes to fly even higher.


MARCH 25, 2002



By David Shook

Edited by Beth Belton

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